Proponents of living wage laws argue that a just society cannot in good conscience pay its workers less than is required to escape poverty. However, some economic theorists contend that establishing high wage floors will force firms to cut jobs in order to hold down their production costs. This debate prompts an empirical question: to what extent are the social benefits of living wage laws offset by adverse economic side effects?
In November 2003, San Francisco voters passed "Proposition L," which established a citywide minimum wage increase from $6.75 to $8.50 per hour that would be adjusted annually for inflation. While some critics assert that the new minimum wage law will lead to job layoffs and higher prices, others champion the law as providing a much needed wage floor for thousands of the city's low-wage workers.
The Dutch economy has often been heralded for accomplishing solid employment growth within a generous welfare system. Though this progress has recently been stalled, much can been learned from the Dutch model, which assumes that low-paid workers will eventually move into better jobs. In the Netherlands, this is generally the case, as low wage earners are usually young people or part-time workers. Low-paid workers are supplemented by a well-developed system of transfers to prevent them from falling into poverty.
In 2004, Germany’s unemployment rate was 10.2 percent, much higher than the euro zone average of 8.8 percent. Some policy analysts have suggested that persistently high unemployment is the result of Germany’s strong unions, high wage floors, strict employment protection laws, and generous unemployment benefits. Recently, the German government has sought to redress issues in its labor market by lowering payroll tax rates on low-wage employees.
Over the last two decades, the percentage of the French labor force engaged in low-wage work has increased significantly -- from 12 percent in 1984 to 17.7 percent in 2002. In general, low-wage employment in France does not seem to be a stepping-stone towards better paying jobs. Nevertheless, recent legislative efforts in France have targeted high unemployment, not low-wage work. The official French workweek has been reduced to 35 hours in an effort to stem unemployment, but this has led to many unintended negative consequences.